Trump delays decision on auto tariffs for up to six months

File photo of US President Donald Trump. Photograph:( Reuters )

AFP Washington, USA May 17, 2019, 11.08 PM (IST)

President Donald Trump on Friday announced a six-month delay in imposing steep tariffs on auto imports, seeking to pressure Europe and Japan into bargaining table concessions on trade.

The decision marked a temporary reprieve from what would have been a sizeable escalation in Trump's multi-front trade wars.

Trump's threat targets a major chunk of global economic activity with profound disruptions. Hundreds of billions of dollars in autos are manufactured, shipped and sold internationally every year.

In a proclamation, the president directed US Trade Representative Robert Lighthizer to update him within 180 days on the outcome of negotiations with the EU, Japan and "any other country" Lighthizer deems appropriate.

By leaving the threat of tariffs, Trump's move raises the temperature in European capitals already angered by the imposition of punishing US duties on steel and aluminium last year.

But Trump's decision also preserved a truce declared last year with European Commission President Jean-Claude Juncker in which both sides agreed to cease trade hostilities while efforts continued to resolve the trade dispute.

In response to the metal tariffs, the EU has already imposed stinging duties on American exports like motorcycles, orange juice, whiskey and blue jeans.

"We note that the US postpones a decision on car tariffs for 180 days," European Trade Commissioner Cecilia Malmstrom said on Twitter.

She confirmed an existing offer that "the EU is prepared to negotiate a limited trade agreement including cars."

The six-month delay had been expected this week as industry sources confirmed media reports that Trump would hold off -- delighting markets which had feared sharp economic consequences of such a move. 

'Competition must be improved'

In his proclamation on Friday, Trump described the US auto sector as facing decline due to unfair foreign competition.

A report by Commerce Secretary Wilbur Ross concluded that America's shrinking share of the auto market jeopardized its research, development and manufacturing -- all "vital to national security," according to Trump.

In conclusion likely to invite challenges from manufacturers and industry analysts, Trump said America's defence industrial base relied on the domestic auto sector for technological advances essential to US "military superiority."

Citing Ross's conclusions, Trump pointed to a doubling of US imports over the last 34 years but accused Europe and Japan of raising "significant barriers" to accepting American exports in return.

In that same period, the domestic market share of American-owned manufacturers fell to just 22 per cent from 67 per cent, he said.

"In light of all of these factors, domestic conditions of competition must be improved by reducing imports," Trump said.

Reacting to the announcement, Dieter Kempf, head of the German industrial federation, said, "cars do not threaten the national security of the United States."

Charlie Chesbrough, the senior economist at Cox Automotive, said that by jacking up tariffs on $200 billion worth of Chinese merchandise last week Trump had shown Brussels his tariff threats were not idle.

"I think it's a signal to everybody that he means business," Chesbrough told AFP. 

"I think in general it's a good news story in that it buys the industry a little more time to try to get the president to change his mind about the tariffs."

The United States imported almost $200 billion worth of autos in 2017, according to the proclamation.

But, while foreign-branded autos are popular in the United States, many automakers have championed their US-based manufacturing operations in places like Alabama, Kentucky and South Carolina.

They warned that a fresh tariff battle would also jeopardize their ability to export US-made products internationally and put jobs at risk.

According to research from American University, many Japanese and German-branded cars sold in the United States have more US and Canadian-made content than do some models from American brands.

The Honda Ridgeline pickup has 75 per cent US-Canadian content while the Mercedes-Benz C-Class sedan is 70 per cent US-Canadian-made.

Ford Motor Company's Lincoln Continental, in contrast, is only 65 per cent US-Canadian made.

"The two economic spaces need each other," said Bernhard Mattes, head of the German automakers' federation.

"The goal of the talks ought to be to broaden the possibilities for free trade."

Story highlights

The decision marked a temporary reprieve from what would have been a sizeable escalation in Trump's multi-front trade wars.